The UK government recently announced the strike price that large-scale solar projects can receive under its new Contracts for Difference scheme. This new scheme is part of the government’s Electricity Market Reform. The prices depend on the type of power being generated and guarantee that generators are paid a fixed sum or a strike price for the electricity they generate. Large solar generators (>1GW projects) will receive £125 in 2014 and £110 in 2019. However, other sources like hydro and biomass will receive the same amount from the 2014-2019 period.
The government confirmed this capacity mechanism will begin next year for existing generators and investors in new plant biddings through auctions for UK’s electricity demands. Participants that successfully bid will receive a payment in the year they agree to make capacity available. To receive payment, they must provide electricity during stress periods or else, a fine will be paid.
The idea behind the new strike prices is to make the UK energy market more attractive for renewable developers, to promote domestic business, to decarbonize the economy, and to reach the goal of over 30% renewable sources by 2020. Of course, there have been some varying opinions on the draft prices. UK’s Renewable Energy Association believes the draft prices are less than was expected and have omitted too much from biomass. While the trade group, RenewableUK, believes that the draft strike prices are a step forwards towards long-term market function. Maria McCaffery, the chief executive, states that although the prices could be challenging, it will be possible considering the shorter time period and in comparison to the Renewable Obligation Scheme. Investor confidence requires some time as well as the knowledge that government incentives for renewable energy are a long-term commitment.
Yet, most agree that there are still details that must be stamped out to overcome the uncertainty. One of UK’s largest utilities, RWE, adds that a lot of uncertainty remains including the need to receive EU state aid approval and the complexity of proposals. Investor confidence depends on long-term support and certainty. When the final details are set, the UK will be able to see how UK energy investments change.
The announcement of the strike prices were announced soon after reports that stated there was a significant risk that the UK may not reach its renewable energy goals. The energy regulator, Ofgem, has done its second annual report on UK electricity capacity stating, “without action, risks to electricity supply could increase during the middle of this decade faster than expected.” The Committee on Climate Change has stated that although, the UK has made strong progress towards their 2020 emission targets, the report emphasizes that they must stay on track. New policies such as the strike prices should be developed and implemented to maintain UK’s renewable targets. If this does not happen, the risks and costs of moving to a low-carbon economy will rise. The Energy Bill must be implemented into the statute books as soon as possible. Charlotte Morton, chief executive of the Anaerobic Digestion and Biogas Association adds that the UK needs stronger coordination between relevant government departments that can provide harmonized policies that can support the nation’s carbon and energy targets.